ADSLCompetitionLaw

New entrants in the French communications and broadcasting markets have been greatly assisted by the willingness of the French Competition Council to give interlocutory relief. An explanation of some major recent cases and their significance.

As the Microsoft case illustrates, when it comes to markets with a strong technology dimension, Competition Law can seem incapable of playing fully the role for which it is intended; instead it simply gives the impression of arriving after the battle has finished, confronting monopolies and cartels whose creation is now complete. It is not unusual to hear victims of anti competitive practices express the view that they see no point in taking a complaint to a Competition Law authority, because the glacial speed of the process, given the rapidity of developments in the relevant market, makes the whole exercise pointless.

However, recent decisions by the Competition Council in France offering interim relief in the media and telecommunications sectors suggest that this traditional pessimism may be increasingly misplaced.

In the last six months, the Competition Council has, with great efficacy, granted interim relief in a series of judgements which between them illustrate that it is possible to obtain a remedy which is adequate to put an end to anti-competitive behaviour carried out by certain enterprises, prior to any examination of the substance of the complaint which is being addressed.

This is particularly important since until recently the Competition Council did not grant interim relief at all except in circumstances so limited that the measures were largely stripped of their intended effect - the same as the European Commission, albeit for different reasons. Only through a narrow interpretation of Article 464-1 of the Commercial Code has the Council decided that it has the necessary powers to grant interim relief, albeit only in the context of an order ancillary to a full hearing concerning anti-competitive behaviour. Paradoxically, it is precisely the difficulties encountered in telecommunications markets which have led the Competition Council to adopt a more pro-active approach. From now on it intervenes as a sort of 'tutor' in developing markets, protecting “young pups” in these markets from the predations of historical operators or from other players who are already well established.

From now on, when considering requests for interim relief to have effect in the telecommunications sector, the Council is more prepared to take into account the damage inflicted on the whole sector in question and to the consumer, even when the survival of the complainant company is not at stake.

What is more, the Council's new approach is more likely to deprive dominant companies of the incentive to act anti-competitively, since it takes away the first mover advantage which their commercial practices might otherwise give them as a result of the very (too) long time which final examination of these activities traditionally takes.

This ex-ante intervention by the Council in fact has its origins in legislation. When French Competition Law was being modified, the Council effectively claimed for itself sole jurisdiction to decide even the form of the interim relief granted, without having to take into account what the complainant party was actually asking for.

Fortified with these new powers, the Council has granted interim relief in four matters which extend across the broad spectrum of communications activities and which are remarkable as much for their impact on the market concerned as for the intrinsic complexity of the injunctions granted, their bases in law and their actual content.

Interim Decisions Having a Significant Impact on the Functioning of the Communications Sector

Now that its approach to jurisdiction for interim relief has become more flexible, the Council has in fact become one of the most efficient national competition law authorities in France for interim proceedings. In the average case where action is justified, the Council is capable of delivering a preliminary decision on facts which are frequently complicated and which raise difficult questions of law, within the times scales of an accelerated procedure lasting roughly two months, and which may contain extremely demanding prohibitions.

Thus in the matter of Cegetel/Tele2, these two companies went to the Competition Council on the 9th and 12th of October 2001[3] complaining about France Telecom's commercial launch of flat rate, retail packages which bundled local and national telephony. The problem with these offerings was that they preceded by several months the introduction of carrier pre-selection and thus gave the dominant operator the opportunity to take control of the market before it was even liberalised. On the 19th of December 2001 the Council not only ordered the withdrawal of France Telecom's offer but also ordered the suspension of signed subscriptions, and their replacement by “unbundled” offerings. The key point is that withdrawal of these products concerned a potential market of 1.5 million France Telecom customers, subscribers to the basic package who were also eligible for the bundled product.

Several weeks later on the 27th February in the matter of T-ONLINE[4], after a hearing which lasted slightly longer (three months, the complaint having been filed on the 27th of November 2001), the Council adopted an even more draconian series of measures and imposed them on France Telecom. These were:

To suspend for a period of several months the sale from its retail outlets of ADSL packs marketed by its internet subsidiary, Wanadoo, which at the time were selling in quantities of up to 1700 every day, or more than 10,000 per week;

To terminate its arrangements for marketing ADSL access with certain unrelated ISPs, the object of which was to co-operate in the distribution of a pack containing (i) an ADSL modem, (ii) a subscription to France Telecom's ADSL service, and (iii) the ISP's Internet access offer - France Telecom requesting in return that ISPs should adhere to a maximum commission to be paid to distributors participating in the operation.

These two decisions have had a fundamental impact on the functioning of the markets in which they take effect.

The decision in Cegetel/Tele2 is without question one of the triggers of the exponential growth in demand for carrier pre-selection over recent months, and the correlating reduction in France Telecom’s revenues in this market segment, even though it is well known that these revenues represent the most significant part of its balance sheet.

In the same way, as a result of the T-ONLINE decision, the suspension of sale of ADSL packages through retail shops would represent a potential loss of revenues of more than 10 million Euros per month and could produce a correlating drop in subscriptions of the order of 30%, these subscriptions it would seem, going directly to competing ISPs. The second desired effect, which was to provide a customer base made up of ADSL subscribers for operators using local loop bundling, is now achievable.

These two decisions have been cited, amongst other things, by financial analysts to explain their reservations about France Telecom, whose share price has fallen by nearly 50% since December 2001.

As for the T-ONLINE decision mentioned earlier, the Council even went so far as to reserve to itself the power to impose a maximum tariff on a company in a dominant position for a given service.

This is not entirely new. Already on 18th February 2000 in a decision concerning 9 Telecom6, confirmed by the Court of Appeal in a decision on 30th March 2000, the Council ordered France Telecom to offer its competitors an ATM over ADSL product at a price which would allow “third party operators to enter into effective competition as much on price as on service content”.

In some regards, the Council has actually now gone further than this previous decision, by obliging France Telecom to thoroughly review those of its information systems which govern eligibility and ordering of ADSL lines, so as to allow mass market distribution of ADSL packages for competitors who do not have the benefits of a network of retail outlets. In doing this, the Council recognised the existence of a structural discrimination attaching to the unique role of retail outlets in the technical implementation of ADSL access, which only Wanadoo was being permitted to exploit, and it did not hesitate in requiring France Telecom to find a way to redress this imbalance between its subsidiary and the subsidiary's competitors. The Council has effectively challenged France Telecom to give up its retail distribution outlets or come up with a software tool which recreates the same effect for competitors.

Progressing from injunctions relating to technical matters, the ANTALIS decision[5], which is the most recently delivered, on 11th April of this year, goes even further. This matter concerns terms and conditions for access to the broadcasting transmission sites of TDF (Tele Diffusion de France) which controls almost all “high points” permitting the installation of transmitters required for Digital Terrestrial TV. The Council having analysed the unique features of high points, access to which was sought by 3 WAVES, decided that they amounted to essential facilities and as a consequence ordered TDF to make its tariffs cost orientated.

Complex and Detailed Injunctions

Clearly, these interim decisions have far reaching effects, not least in their ability to affect fundamentally the functioning of the markets in question before a Court has had an opportunity to consider the substance of the matter.

This binary impact (i.e. important potential consequences but provisional character of the decision) explains why the reasoning behind, and form of, the decisions adopted have become increasingly complicated.

The T-ONLINE decision provides a helpful illustration of the particularly complex devices which the Court may resort to.

The Council actually linked suspension of retail distribution through France Telecom shops, with a complex mechanism requiring France Telecom to develop an information system for the benefit of Wanadoo's competitors. This mechanism had to be effective enough to allow ISP’s competing with the Wanadoo subsidiary to be compensated for the competitive disadvantage they suffered by not being able to use France Telecom’s retail outlets to distribute their ADSL services. To ensure that Wanadoo’s ISP competitors could not draw out indefinitely the suspension of Wanadoo's distribution by refusing to work with France Telecom in developing the information system or by making unreasonable demands, the Council determined that the injunction should be reviewed after four months but at the same time it authorised France Telecom to seek an end to the suspension on signing by at least two ISPs of the contract for the information system and following completion of a one month trial.

France Telecom attempted to have this uncomfortable decision reviewed by the Court of Appeal, complaining about the complexity of the imposed solution and the legal reasoning behind it, and claiming in the press that the injunction imposed on it was “surreallist”, (referring to "surrealist poetry"). All to no avail, because the Appeal Court firmly validated the Competition Council’s reasoning and rejected France Telecom’s request. The care which the Council takes in putting together its decisions is justified by the fact that they do not only affect the parties in dispute, as in civil or commercial matters, but they also concern the market in its entirety. Any commercial player in the sector is in effect the recipient of Competition Council decisions and even a party which was not involved in the legal process may, in certain circumstances, request that the Council verify the extent to which its decision is being respected.

Increasingly Complex Decisions Which Rely on the Opinion of Regulatory Authorities

For the Council to adopt interim measures it must be satisfied that there is a clear probability that Competition Law will be breached if it does not act, and it looks for prima facie violations of articles 420-1 or 420-2 of the Commercial Code. The legal foundation of these decisions depends to a great extent on the views expressed by the regulatory authorities concerned, which under French law must be consulted by the Council before it is able to act.

Thus, as much in the T-ONLINE case as in the Cegetal case, the French regulator, the Autorite de Regulation des Telecommunications (ART) came to the assistance of the complainant parties. Co-operation between the ART and the Council has become standard practice.

Co-operation with the broadcasting regulator, the Conseil Superieur de l'Audiovisuel (CSA) is less institutionalised, since broadcasting rules are not based on competition law to the extent that telecommunications legislation is - telecoms law is of course, partly founded in competition law concepts. The CSA, in the RMC[6] case, initially expressed reservations about the appropriateness of granting exclusive radio broadcasting rights for sport. It revised its position and eventually confirmed in its opinion to the Council, the validity of exclusive licences and the unnecessary character of the purchasing consortium put in place by Europe1, RTL and Radio France, known as the 'GIE Sport Libre'.

Such expressions of opinion are no substitute, however, for the adoption by the Council of its own reasoned arguments. It is up to the Council alone to decide the need for interim measures, supposing that, on the basis of opinions delivered by the regulatory authorities, it proceeds to a primary analysis of the substance of the complaint.

In the Cegetel or Antalis cases, the position of the Council was made easier by the fact that the practices complained of had already been criticised in the past or closely examined when the Council was consulted for its opinion by the Government or professional organisations.

In the matter of T-ONLINE, the Council had not had the opportunity to rule on the question of France Telecom’s utilisation of its retail outlets for distribution solely of its own products. Nevertheless it relied on previous rulings in the area of fast Internet access using ADSL technology.

On the other hand in the RMC Info matter relating to sports radio broadcasting rights, past experience for the Council in the radio market was non-existent. Further, the founders of the consortium which was the subject of the complaint had rallied the support, before the hearing, of all of their political allies - many of whom, given the sensitivity of the question, took a particular interest because of the election which was looming at the time.

The consortium concerned was in effect assembled as a reaction to the acquisition in December 2001 by RMC of sole radio broadcasting rights for the 2002 Football World Cup, this acquisition being a first in France. The objective of the consortium was to provide an alternative to a fractured assembly of disparate radio stations, allowing them to negotiate the purchase of sports broadcasting rights as a single body presenting a united front to the then owners of the rights, the Kirch Media Group, which was falling apart. The consortium embarked on a dirty tricks campaign involving negative press coverage, the radio stations which did not have rights to broadcast the World Cup forcing RMC Info to give up its exclusivity. What actually went on is still being established, but the goal was to prevent RMC Info from agreeing sub-licences with other radio stations to complete its radio coverage.

The issues referred to the Competition Council by RMC Info were complicated by the fact that the consortium had been notified to the Competition Directorate General of the European Commission under regulation 17/62, and that the founders of the consortium sought to use the European Commission's decision in the UER case[7] to support their position.

The Council launched a detailed analysis of the UER decision and the circumstances in which the consortium had been set up and concluded that the position adopted by the Commission in that decision was not obviously applicable to the case in hand. In particular, the Council concluded that the fact that the consortium was established as a reaction to RMC Info's acquisition, and that it brought together the two biggest general commercial radio stations in France (Europe 1 and RTL) in addition to Radio France, made it very unlikely that the consortium should qualify for an exemption on the grounds of economic progress.

As requested by the complainant, the Council ended up ordering that those clauses of the consortium agreement whose object was to co-ordinate negotiating tactics for acquisition of broadcasting rights for the World Cup, should be suspended. These were in fact, the principle activities for which the consortium had been established.

Outside the media and telecommunication sectors, this solution is ground breaking in that it is the first time that the Council has adopted an interim measure suspending certain dispositions in a joint venture agreement which itself is not subject to merger control. Had merger rules applied to the consortium, its operation would have been suspended for the period of the Court's examination. On the other hand, had this consortium come within the provisions of Article 81, it would not, paradoxically, be susceptible to any notification obligations under domestic law, nor, following reform of Regulation 17/6, under community law either, even though it brings together all players in a given market and is therefore potentially dangerous under competition law.

These developments in the practices and jurisprudence of the Competition Council, concerning interim measures, constitute an important step in the right direction, in that victims of anti competitive behaviour may now obtain relief extremely quickly in markets which are very fast moving. They satisfy as well a real need for a judicial presence in the media and telecommunications sectors. This said, systematic recourse to interim measures should not become a makeshift solution to the difficulties which the Council continues to face ie dealing with the real issues arising in a dispute, within timescales which satisfy the needs of business (average timescales for a decision on the merits are currently three years). This might better be achieved by the imposition of fines which are dissuasive enough to remove any risk of repeated breach of competition law.

If you would like to discuss the application of competition law in the high speed services market, please email clb@twobirds.com.